Question

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Legacy issues $600,000 of 7.0%, four-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. They are issued at $541,807 when the market rate is 10%.

1. Prepare the January 1 journal entry to record the bonds' issuance.

Options for the General Journal

Record the issue of bonds with a par value of $600,000 on January 1, 2019 at an issue price of $541,807. Note: Enter debits before credits. General Journal Debit Credit Date January 01

• Accounts payable
• Accounts receivable
• Accumulated depreciation
• Bond interest expense
• Bond interest payable
• Bonds payable
• Cash
• Common stock
• Contributed capital in excess of par value
• Depreciation expense
• Discount on bonds payable
• Gain on retirement of bonds payable
• Interest payable
• Lease liability
• Leased asset
• Loss on retirement of bonds payable
• Premium on bonds payable
• Rental expense

2. Determine the total bond interest expense to be recognized over the bonds' life.

3. Prepare a straight-line amortization table for the bonds' first two years.

4. Prepare the journal entries to record the first two interest payments.

2) Record the interest payment and amortization on December 31.

Options for the General Journal

• Accounts payable
• Accounts receivable
• Accumulated depreciation
• Bond interest expense
• Bond interest payable
• Bonds payable
• Cash
• Common stock
• Contributed capital in excess of par value
• Depreciation expense
• Discount on bonds payable
• Gain on retirement of bonds payable
• Interest payable
• Lease liability
• Leased asset
• Loss on retirement of bonds payable
• Premium on bonds payable
• Rental expense

Answer 1

Answer-1- Journal entry for issue of bonds

Date	General Journal	Debit ($)	Credit ($)
Jan.01,2019	Cash	541,807
	Discount on bonds payable	58,193
	Bonds Payable		600,000
	(To record the issuance of bonds)

2-

Total bond interest expense over life of bonds:
Amount repaid:
8 payments of $21000 ($600,000*7%*6/12)	168000
Par value at maturity	600000
Total repaid	768000
Less amount borrowed	541807
Total bond interest expense	226193

3-Straight-Line amortization Table:-

Semiannual Interest Period­End	Cash Interest Paid	Bond Interest Expense	Discount Amortization	Unamortized Discount	Carrying Value
01/01/2019				58193	541807
06/30/2019	21000 ($600,000*7%*6/12)	27090 ($541,807*10%*6/12)	6090 ($27,090-$21,000)	52103 ($58,193-6,090)	547897 ($541,807+6,090)
12/31/2019	21000 ($600,000*7%*6/12)	27395 ($541,807+$6,090*10%*6/12)	6395 ($27,395-$21,000)	45708 ($52,103-$6,395)	554292 ($547,897+$6,395)
06/30/2020	21000 ($600,000*7%*6/12)	27715 ($541,807+$6,090+$6,395*10%*6/12)	6715 ($27,715-$21,000)	38993 ($45,708-$6,715)	561007 ($554,292+$6,715)
12/31/2020	21000	28050	7050	31943	568057

4-Journal entries for first two payments:-

Date	General Journal	Debit ($)	Credit ($)
June 30,2019	Bonds interest expenses	27,090
	Discount on bonds payable		6,090
	Cash		21,000
	(To record interest expenses)
Dec.31,2019	Bonds Interest expense	27,395
	Discount on bonds payable		6,395
	Cash		21,000
	(To record interest expenses)

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